The first half of 2024 has seen major stock indexes soaring to near-record highs, and Wall Street analysts are expressing growing confidence that the rally isn’t over. With optimistic outlooks for earnings and economic growth steadily increasing throughout the year, experts have revised their year-end targets for the S&P 500 upwards.
The median target on Wall Street for the benchmark index now sits at 5,250, a significant increase from the 4,850 projected at the end of 2023. Notably, the highest target has also surged from 5,200 to an ambitious 5,600. This shift in sentiment is largely attributed to a “soft landing” scenario, where inflation is moderating without a drastic economic slowdown.
While recent inflation data has exceeded expectations, experts believe it hasn’t indicated a worrisome reacceleration of price increases. Concurrently, signs of a slowing but robust economy have alleviated fears of another inflation spike, bolstering the soft landing narrative that many market analysts anticipated.
The evolving economic landscape has prompted a significant shift in market expectations regarding interest rates. Projections for rate cuts this year have decreased from a peak of nearly seven to around two, aligning with the Federal Reserve’s most recent guidance. This alignment between investor expectations and Fed policy has been cited as a crucial factor contributing to the market’s newfound strength.
Historical data further reinforces the bullish sentiment, suggesting that years with substantial S&P 500 rallies in the first five months tend to see further gains exceeding 7% by the end of the year. However, experts caution that this upward trajectory may not be without its share of pullbacks. Despite April’s 5% retreat being relatively mild compared to historical averages, the possibility of a more significant correction remains on the horizon. Nevertheless, given the market’s current strength, any potential pullback would likely occur at higher index levels than previously anticipated.
Corporate earnings have played a pivotal role in fueling the market rally thus far, with the first quarter of 2024 boasting a 6% growth rate – the highest in nearly two years. While tech earnings have been a primary driver, there’s optimism that this growth will extend to other sectors. The initial phase of the AI cycle, primarily benefiting companies like Nvidia, is expected to expand its reach, with recent rallies in sectors like utilities and energy signaling a broader positive impact.
Although some investors are expressing bullish sentiment, equity positioning hasn’t seen a significant shift in recent months. This suggests that there might be additional room for stocks to climb, especially considering the potential for the US economy to outperform expectations. If the consensus continues to adjust upwards and the economy demonstrates stronger-than-anticipated growth, it’s conceivable that the S&P 500 could even reach 6,000.
